“Person”

The inimitable A. Wright Burke, M. Phil., added to this recent post on the word anyone the following comment (here):

People are entities! There are natural entities (“individuals”) and artificial entities (e.g., corporations, khanates). People are “legal entities,” too. So the question is whether “anyone” refers only to natural persons or also to artificial persons. … If “anyone” is thought risky, “any person” is less so, and “any person,” where “person” is a defined term that includes natural and artificial persons, is as riskless as it gets.

I recognize that “entities” is lawyer’s shorthand for artificial persons, but in actual contract drafting, it’s better to be precise: “people and *other* entities.”

Five points:

First, you can’t rely on readers assuming that person encompasses natural persons and artificial persons. After all, Black’s Law Dictionary gives as alternative definitions of person “A human being” and “An entity (such as a corporation) that is recognized by law as having most of the rights and duties of a human being”; a reader might have in mind the first definition and not the second. So as A. Wright Burke suggests, I would use person as a defined term that includes natural and artificial persons. But because Person can be stultifying when used to excess (If any Person complains about the odor …), I’ll use anyone or something comparable when circumstances permit it.

Second, as suggested by this comment by Yevgeniy Tamarchenko, although person can refer to an entity, it doesn’t follow that the converse is true—that entity can refer to a natural person. Black’s Law Dictionary offers only one definition of entity, that quoted by Yevgeniy: “An organization (such as a business or a governmental unit) that has a legal identity apart from its members or owners.” So I’m unable to endorse A. Wright Burke’s impassioned cry, “People are entities!”

Third, I find natural person too legalistic to use in contracts. Using human being instead isn’t a sober option. I use individual. Garner’s Dictionary of Legal Usage says that “individual is best confined to contexts in which the writer intends to distinguish the single (noncorporate) person from the group or crowd.” But the parenthetical in the quoted sentence demonstrates why its preferred choice, person, wouldn’t work in contracts.

Fourth, are artificial person and entity synonyms? Going just by their respective Black’s Law Dictionary definitions, natural person could be a subset of entity.

And fifth, it’s standard for definitions of Person to contain what I call needless elaboration—recitation of obvious examples. Here’s an example:

“Person” means an individual, a corporation, partnership, limited liability company, association, trust, unincorporated organization, or other legal entity or organization, or a Government Body.

How about using the following instead?

“Person” means an individual, an entity, or a Government Body.

Any thoughts? And do things play out differently in jurisdictions outside the U.S.?

“Khanate” got me thinking: Any ambiguity in what law the “legal” in “legal entity” refers to? Under any legal system? Under any legal system that will enforce the interpreting court’s judgment? Does the governing law provision of the contract have any effect?

Rather fanciful, but a new rabbit hole for me.

AWrightBurkeMPhil

Thinking is probably the root of all the trouble in the world, but it can be fun.

You rightly see a division of entities into “legal entities” and “all other entities.”

If we define “legal” entities as entities that can “(1) enter into agreements or contracts, (2) assume obligations, (3) incur and pay debts, (4) sue and be sued in [their] own right, and (5) to be accountable for illegal activities”; http://thelawdictionary.org/legal-entity (Featuring Black’s Law Dictionary Free Online Legal Dictionary 2nd Ed.); we certainly open up the possibility that there can be entities (e.g., khans and kings) that are sometimes and for some purposes legal entities and other times for for other purposes not legal entities (e.g., immune from suit, immune from statutes of limitation).

And so the rabbit hole.

Westmorlandia

I think it’s unlikely to be so complex! At least in principle.

A thing’s status as a legal entity (or not) wouldn’t be affected by immunity or similar concepts – after all, having immunity suggests that something is capable of being sued in its own name in the first place, and the immunity simply overlays that status. Under English law, I don’t think something could be a legal entity for some purposes but not for others. It is or it isn’t.

As regards different legal systems, the question must always be asked by reference to a given jurisdiction’s law (most likely to be the law of the contract). So we are always asking whether something is a legal entity in English law (or in French law, or New York law, or whatever law it may be). The question can’t technically be asked without reference to a law. For non-English entities, English law will look at the local law of foreign entities to determine whether it has the attributes of a legal person (which are essentially those cited by AWrightBurkeMPhil).

AWrightBurkeMPhil

“It is or it isn’t.” What if an entity has some but not all of the attributes of a _legal_ entity?

If the King cannot be sued or held accountable for illegal activities, but can incur and pay debts, enter into agreements, and assume obligations, is he or isn’t he a legal entity?

By the cited definition, he doesn’t qualify.

So the complexity is unavoidable, in principle and practice.

Speaking of monarchs, who are individuals: if individuals are defined not to be legal entities, what language concisely distinguishes between those individuals (kings, khans, diplomats) who cannot be sued or held accountable for illegal activities and those who can? “Legal individuals” and “non-legal individuals”?

I think it’s a mistake not to include individuals under the umbrella of “legal entities,” and another mistake to fail to distinguish between “entities” and “legal entities.”

Everything that exists is an entity. Legal entities are a tiny subset of entities generally. So are “persons,” under any reasonable definition. Defining “person” to include all entities isn’t reasonable.

I would therefore tweak Ken’s definition to say “‘Person’ means a legal entity, not excluding individuals or Government Bodies.”

This doesn’t address Westmorlandia’s issue about partnerships that at some times in some places and for some purposes are legal entities and in others not — mere aggregates of individuals.

Whether to make a partnership a defined “person” (or “legal entity”) when it isn’t one under background law depends on what you’re trying to do in the contract, as Westmorlandia correctly says.

Funny that Westmorlandia, who says something either is or isn’t a legal entity, no complexity about it, then brings up partnerships. He containeth multitudes.

–Wright Burke

Westmorlandia

Ha! Well, a partnership is not a legal person, so the question is simple to that extent. The simplicity I referred to is merely in the fact that the answer for an entity is either yes or no, and not “sometimes” (with, I think, some statutory exceptions I would never expect to come across, like trade unions).
I would also like to throw the term “legal person” into the mix. I think it is a more clear-cut term than “legal entity”, as some people take the latter to include things without legal personality. (See Rick Colosimo below.)

AWrightBurkeMPhil

Ha? At least in U.S. states where the Uniform Partnership Act has been adopted, a partnership is a legal person that can own land, sue and be sued, etc., apart from the partners. Indeed, the matter is sliced fine enough that if you get a judgment against a partnership, you are limited to satisfying it from partnership assets unless you sued the partners in addition to the partnership entity. (All this is from memory and could be wrong, in which case humble pie will be my lunch, or whatever meal it is in your time zone.) Are you still content to assert that it is simply so that a partnership is nowhere and never a legal person? –Wright Burke

Westmorlandia

I would never dream of saying such a thing! I must have been referring to English law…
I will confess, I was completely unaware that US partnerships tended to be treated as legal persons – there seem so many good reasons not to have such a law. But US laws have always seemed full of strange concepts to me, so perhaps I shouldn’t be so surprised.

http://www.lawnotes.com D. C. Toedt

I prefer “individuals and organizations”; if desired, “organizations” can be defined with lots of examples (corporations, partnerships, trusts, etc.), e.g., those listed in UCC 1-201(27).

Chris Lemens

I agree with DC, especially because I rarely care about whether the organization has legal personality.
Chris

AWrightBurkeMPhil

This is the “mind over matter” approach. If you don’t mind, it doesn’t matter.

Westmorlandia

In defining “person”, the main problem in my experience is the status of partnerships. Partnerships (including limited partnerships in many jurisdictions, although not in Delaware) are not legal entities. However, I find that I do generally want them included in a definition of “person”, because that is likely to be more straightforward (both legally and for a reader) than relying on a fairly technical analysis of partnership law to determine whether the definition covers situations where a partner (being a legal person itself) enters into an agreement, or holds assets, or does some other thing, in the name of the partnership.

So I would probably add “partnership” to the suggested definition, although to some extent it might depend on how the definition is used in the contract.

http://rickcolosimo.com Rick Colosimo

We have an awful lot of partnership law for something that’s not a legal entity, don’t you think?

Legal entity doesn’t equate to “statutory entity,” in the sense that a statute has to create the entity. Even the IRS, that second-most common offender of the “there must be a rule for everything” agency (the SEC wins against all comers), acknowledges that unincorporated associations may apply for 501(c)(3) exempt status as a charitable organization.

Partnerships can act as an entity/legal person. They are not limited to acts of general partners that are ascribed to the partnership collectively (which is, of course, true of common-law partnerships when one is created without any of the familiar formalities of a partnership agreement.

Finally, let’s separate this into three questions, as Ken often does:

1. How are the terms currently used?
2. What do the terms *mean*?
3. What could we choose, as a matter of style and precision, to avoid unintentional and intentional ambiguity?

Westmorlandia

We have a lot of trust law as well, but trusts aren’t legal entities either.
Legal entity does not, to me, mean “statutory entity”, but it does (to me) mean the same as “legal person”. Following your scheme:

1. In my experience, that is how the term is used.

2. If “meaning” means “meaning in law”, the English courts tend to use it in the same way. (Although at a glance they seem to use “legal person” more frequently – it ties in better with the well-understood term “legal personality”, which is at the heart of what we’re talking about.)

3. As above, I suggest “legal person” might be clearer. Hopefully it is less subject to different interpretations.

Your distinction between partnerships formed without formalities and other partnerships (what?) is interesting – it isn’t familiar to an English lawyer. But recognising that a thing exists as a legal concept, and making rules in respect of that thing, does not mean that it has legal personality.

http://rickcolosimo.com Rick Colosimo

So perhaps we have discovered a difference between English and US law here. General description: any time that two people (not husband and wife, since that’s sometimes an exception) start a business, it’s by default a general partnership. No filing is required with the state to create a partnership entity: it just happens. The partnership can form contracts and sue or be sued in its own name. Liability of the partnership is separate from the liability of the general partners, and it’s not automatically the case that you can sue a general partner for the partnership’s liabilities, even though a general partner will almost certainly be liable to satisfy a judgment if not paid by the partnership. YMMV (some states have different versions, where the partners can be sued directly).

I think your trust example is much better, since that is more of a true fiction (damn lawyers and their oxymorons). Even though we use declarations of trust and give them tax identification numbers, we only, in my experience, have trustees execute documents, not trusts on their own behalf. All of this makes more sense to me if you go back to the notion of a “trust” being merely shorthand for “the relationship created by holding of property by one in trust for another.”

So, I vote to keep partnerships in, but exclude trusts, and include trustees, which are hopefully one of our other legal entities.

Vance_Koven

This one’s for you, AWB:

A person is an entity
Unless he’s a nonentity,
In which case you may well ignore him
Except to constitute a quorum.

To make this marginally pertinent, I am reminded of the German “silent partnership” often arranged between, if I remember correctly, a GmbH and a Kommanditgesellschaft, which exists for some purposes and doesn’t for others. Sort of like Schrodinger’s cat, no?

AWrightBurkeMPhil

Any mention of Schroedinger’s poor cat throws me into paroxysms of Gleichshaltung, so here’s something without a shred of pertinence, marginal or otherwise:

“Big bugs have little bugs/ Upon their backs t’ bite ’em/ Little bugs have lesser bugs/ And so ON ad infi-NIGHT-um.” (It doesn’t work unless stressed that way. And speaking of stress, like the Wichita Lineman, I think I need a small vacation.) –Wright Burke

Rich Vicenzi

Ken, in your blog post on defining “Government Body” you stated “In
the third clause, as in my drafting generally, I used organization
rather than entity, because strictly speaking a partnership,
for example, isn’t an entity.”

So, should “Person” be redefined as “an individual, an entity, an organization, or a Government Body?”

http://www.adamsdrafting.com/ Ken Adams

Thank you for keeping me honest! Your point is a good one. But recently, I found myself adding “(including a partnership)” after “entity.” (I should update this post to mention that. What do you think of that as an alternative?

Rich Vicenzi

OK with me. So are you conceding that a partnership can constitute an entity, and an organization is just a type of entity?

http://www.adamsdrafting.com/ Ken Adams

I ain’t conceding nuthin! But I am experimenting with bringing partnerships within the scope of “entity.” I’m prepared to have you suggest that partnerships would make more sense under “organization.”

Rich Vicenzi

How about this compromise:

“Person” means an individual, an entity or organization (including a partnership), or a Government Body.

http://www.adamsdrafting.com/ Ken Adams

Let me ponder this. It might take a while!

In House Attorney #24601

I thought about commenting on this earlier, but I am currently revising my company’s MSA and one of the definitions I am looking at is “Persons” which has a laundry list entry of examples followed by the obligatory “or other entity” capping it off.

At the outset, I like the starting point of:
“Person” means any individual, entity or organization, or government body.

However, then a few issues arise:

1) Concerning “government body” — what if its an agency/subdivision of the government body? Assuming the “body” comprises of multiple agencies/subdivisions, the agency/subdivision could be at issue without the body itself (“the whole”) being implicated. This could create unintended consequences, no?

2) is there a need to specify “including a partnership” in addition to stating “entity or person” — i feel as though organization should amply cover that and then you run into the “why did you use this example but not that one” problem of reducing the laundry list of terms — that is, selectively retaining some of the laundry list.

Any thoughts on this, or is this post too old to merit further discussion on the topic? (if so, I’ll have to make sure to chime in sooner than 3 months after a thought rolls through my head next time).

http://www.adamsdrafting.com/ Ken Adams

Hey, it’s never too late! I’ll be revisiting this afresh next year, when I start compiling the fourth edition of MSCD.

I don’t see any issue with government body.

I suspect that I’ll end up adopting your approach: include organization and don’t specify partnership.

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In addition to Ken’s posts from February 2013, this blog contains Ken’s posts from The Koncise Drafter (from December 2010 to February 2013) and from the AdamsDrafting blog (from May 2006 to December 2010).